With his recent donation of $31bn to the Bill and Melinda Gates Foundation – the bulk of his $44bn fortune – Warren Buffett has both stolen the headlines and rewritten the history books.
At today’s prices Buffett’s donation is more than double the combined lifetime giving of the fathers of American philanthropy, Andrew Carnegie and John Rockerfeller.
But this is not just a cash donation. Buffett’s gift to the Bill & Melinda Gates Foundation is to be made through shares in his investment powerhouse Berkshire Hathaway.
By the time Buffett is through with his giving, the Gates’ foundation will hold nearly a third of Berkshire shares. Based on Berkshire’s financial performance to date, the value of the annual contribution of shares is likely to grow nicely.
Buffett has been a longtime critic of traditional corporate philanthropy, telling shareholders in 1981 that he was bothered by the way gifts tended to be made based more on who does the asking and how corporate peers are responding than on an objective evaluation of the donee’s activities. As a result Buffett set up an innovative way for shareholders to donate, whereby they were permitted to make a proportional donation from corporate profits set aside for the programme.
Buffett’s new arrangement with the Gates foundation means that wealth created by the company’s success will contribute directly to social issues, rather than simply allocating ‘extra’ cash for charitable donations.
Buffet’s philanthropy comes as US corporate giving continues to grow. In 2005, giving rose by 18.5% to $13.8bn (including grants from corporate foundations), according to Giving USA. Much of the increase came from an estimated $1.4bn in cash, products, and services given by companies in response to disasters.
But a recent survey finds that US consumers view charitable donations as fairly insignificant when judging a company’s CSR profile. A National Consumers League and Fleishman-Hillard survey finds that commitment to employees, followed by commitment to communities, and only then the provision of quality products, as the most important CSR issues. Environmental responsibility is next in line, with charitable donations trailing well behind.
While many US CEOs still endeavour to push their charitable giving up to the 1% of profit benchmark to maintain their company’s reputation Buffett’s approach may inspire a new generation of smart corporate philanthropy. We hope it will be a generation that links business and social investment more closely than ever and where both will be driven by achieving the best possible return on investments.
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